Open source projects aren't tax scams

IRS is eyeing open source projects and Tea Party groups as possible tax scams, raising a real question: Do open source foundations need nonprofit status?

InfoWorld|Jun 28, 2013

Why does the IRS think open source projects are like Tea Party chapters? Recently released IRS papers show the agency has been flagging and obstructing applications for nonprofit status by open source communities -- since as far back as 2010 and probably earlier.

Think of an open source project: Firefox, LibreOffice, Apache HTTPD, Eclipse. All are projects hosted by nonprofit organizations. Many of them have the word "foundation" in their name -- Mozilla Foundation, Document Foundation, Apache Software Foundation -- so many people collectively call them "foundations." There are now so many of them that the informal mailing list their leaders use to discuss matters of mutual interest, called the FLOSS (free/libre and open source software) Foundations List, now numbers hundreds of people.

Why do we have foundations? Simply because they are the best way for a community of open source developers, deployers, and users to organize themselves in a way that optimizes everyone's mutual benefit. When a single interested party has the controls, the interests of smaller participants are subjugated. But when a community is run as an uncoordinated free-for-all, the stringent needs for traceable copyright and patent defenses that corporations have go unmet. An independent foundation can meet both of these needs. As Paula Hunter and Stephen Walli -- leaders of the OuterCurve Foundation, whose founders focussed on meeting corporate concerns -- said in a recent law journal paper:

Neutral nonprofit FOSS foundations have proved to be a solution to these problems, providing for the IP management needs of corporations while offering additional business and technical services to the project communities to encourage further growth and adoption.

Foundations are independent corporations, able to have processes that manage copyright, patent, and trademark needs, but also able to embody a democratic process for every good-faith participant, not just the ones with money. They serve as the perfect vehicle for these provenance and governance roles as well as shared administration of events, as an entity able to take legal advice on behalf of the community, and perhaps even enforce rights against abusers. Plus, they provide a huge range of other shared services, none of which directly result in code being developed.

Having been personally involved in a good number of them, I can attest to their value in delivering a level playing field for open source developers. I would even suggest avoiding projects that don't have one. Single-company-run projects tend to skew their benefit toward that single company. Cleverly managed ones even make you believe that's good!

So why is the IRS targeting open source nonprofits? I have asked several very well-informed people, and while they have theories, no one really knows. Some wonder if a big proprietary corporation has at some point complained that it can't compete with these open source upstarts. Others, like Bradley Kuhn of the Software Freedom Conservancy, think the IRS has simply become confused by this valid but new use of old rules. He told me:

I really believe that there are lots of different types of open source and free software projects. Some of the difference here is that classic difference between open source, which has more of a business focus (à la a 501(c)(6)), and free software, which is community-driven, volunteer-oriented development designed to make the world a better place. People have for a long time conflated these two types of work in our community. It's thus no surprise the IRS is confused: This distinction that too many people in our community ignore is very close to the distinction that the IRS is trying to draw when they consider whether an org is appropriately a (c)(6) or a (c)(3).

The important aspect of all FLOSS licensing is equity to the entire public. A license that gives the same rights and freedoms to everyone in the public -- individuals, nonprofits, and for-profit companies -- is a central tenant of our community. That's a point that the IRS is missing, I think: It seems they don't realize that access to software's source and the right to modify and redistribute it for any purpose empowers everyone equally. It seems as if the IRS is worried that those rights only empowers businesses. If the IRS really does think that, they've misunderstood, and we need to educate it.